Americans Are Voting with Their Feet for Economic Freedom

North American Moving Services just released its annualUS Migration Report for 2017based on household moves from one US state to another last year. In 2017, thetop five inbound US stateswere: Arizona, No. 1 with 67 percent inbound moves vs. 37 percent outbound, followed by Idaho (63 percent-37 percent in-out), North Carolina (62-38 percent), South Carolina (62-38 percent) and Tennessee (58-42 percent). Thetop five outbound US stateslast year were: No. 1 Illinois (32 percent inbound moves vs. 68 percent outbound), followed by Connecticut (38 percent-62 percent in-out), New Jersey (38-62 percent), California (40-60 percent), and Michigan (41-59 percent).

North American Moving Services’interactive map includes annual state migration data back to 2011 and reveals some interesting historical patterns:

Illinois has been among the top five outbound states each year from 2011 to 2017 and was No. 1 or No. 2 in each of those years except 2011, when it was No. 3. New Jersey has been in the top five outbound states in each of the last seven years from 2011 to 2017. Connecticut has been in the top five outbound states every year since 2011 except for 2012, and Michigan every year except 2013. Last year was the first time that California was among the top five outbound states.

For the top five inbound states, Arizona has been included every year except 2011, and it’s been No. 1 or No. 2 in each of the last four years. South Carolina has been in the top five inbound states in each of the last seven years, and North Carolina every year except two (2011 and 2015). Florida has been among the top five inbound states in most years but wasn’t in 2017, replaced in the top five by Tennessee, which made its debut last year.

Economic Questions

It does appear that the top five inbound states are on average out-performing the top five outbound states. What significant differences are there, if any, between the top five inbound and top five outbound states when they are compared on a variety of measures of economic performance, business climate, business and individual taxes, fiscal health, labor market dynamism, etc.? Assuming that many Americans “move/vote with their feet” when they relocate from one state to another, is there any empirical evidence to suggest that Americans are moving to states that are relatively more economically vibrant, dynamic and business-friendly, with lower tax and regulatory burdens and more economic and job opportunities, from states that are relatively more economically stagnant with higher taxes and more regulations and with fewer economic and job opportunities?

The table above summarizes a comparison between the two groups of US states (top five inbound and outbound) on nine different measures of economic performance, labor market dynamism, business climate, tax climate, and fiscal health for those ten states. And on each of those nine measures, it does appear that the top five inbound states are on average out-performing the top five outbound states, suggesting that migration patterns in the US do reflect Americans “voting/moving with their feet” from high-tax, business-unfriendly, economically stagnant states to lower-tax, business-friendly, economically vibrant states. Let’s review those measures, one-by-one:

1. Right-to-Work. All five of the top five inbound states are Right-to-Work (RTW) states, and all of the top five outbound states except Michigan are Forced Unionism states. According to many studies likethis oneby my AEI colleague Jeff Eisenach (emphasis mine):

There is a large body of rigorous economic research on the effects of RTW laws on economic performance. Overall, that research suggests thatRTW laws have a positive impact on economic growth, employment, investment, and innovation, both directly and indirectly.

Therefore, it would make sense that Americans are leaving forced unionism states for greater job opportunities in RTW states.

2.Taxes.Theaverage top individual income tax ratein the top five inbound states is 4.9% compared to 7.7% in the top outbound states. Likewise, theaverage top corporate tax ratein the top five inbound states is 5.4% compared to 8.1% in the top five outbound states. It’s an ironclad law of economics that if you tax something you get less of it, and it’s therefore no surprise that Americans and businesses are leaving relatively high tax states for relatively low tax states.

Update: For Tennessee, there is a 5% tax on dividend and interest income only, but no state income tax on ordinary income. The table and text above have been updated to reflect that correction.

3.Forbes Best States for Business. Based on itsmost recent annual state ranking that measures six business categories: costs, labor supply, regulatory environment, current economic climate, growth prospects and quality of life, Forbes rated North Carolina as the best US state for business last year. Three of the other four states in the top five inbound states (Tennessee, South Carolina, and Idaho) ranked in the top half of the best US states for business, and Arizona ranked No. 33. All five top outbound states ranked in the bottom half of the best US states for business, and four states (Illinois, Connecticut, New Jersey and Michigan) ranked in the lowest one-third of US states for business.

It’s perfectly understandable that low-tax, business-friendly states like North and South Carolina are experiencing net inflows of Americans and businesses. 4. Business Tax Climate Rankings. Every year the Tax Foundation creates its State Business Tax Climate Index based on each US state’s corporate income taxes, individual income taxes, sales taxes, property taxes, and unemployment insurance taxes. For the most recent Tax Foundation rankings, all of the top five inbound states except North Carolina ranked in the top half (best) of states, and all of the top five outbound states ranked in the bottom (worst) half of the states except Michigan. New Jersey ranked as the worst US state (No. 50), California ranked No. 48 and Connecticut ranked No. 44.

Based on the last two categories (Forbes Best States for Business and The Tax Foundation’s Business Tax Climate Ranking), it’s perfectly understandable that low-tax, business-friendly states like North and South Carolina are experiencing net inflows of Americans and businesses, while high-tax, business-unfriendly states like New Jersey and California are losing populations.

All five of the top outbound states ranked below average and in the bottom one-third of US states. 5. State Fiscal Rankings. In an annual study, the Mercatus Center ranks each US state’s financial health based on short- and long-term debt and other key fiscal obligations, such as unfunded pensions and healthcare benefits. According to its most recent report, “The fiscal health of America’s states affects all its citizens. Indicators of fiscal health come in a variety of forms — from a state’s ability to attract businesses and how much it taxes to what services it provides and how well it keeps its promises to public-sector employees.”

In its most recent 2017 report, the Mercatus Center ranked all of the top five inbound states except Arizona in the above average (Tennessee, Idaho and North Carolina) and average categories (South Carolina). In contrast, all five of the top outbound states ranked below average and in the bottom one-third of US states, and Illinois (No. 49) and New Jersey (No. 50) ranked at the very bottom.

6.Economic Performance. The last three categories above show economic performance measures for each of the ten states for: a) state GDP growth rate in the first half of 2017 (most recent data available), b) the state jobless rate in November 2017, and c) employment growth over the most recent one-year period through November 2017. For the top five inbound states, the average GDP growth rate is 1.6 percent, the average jobless rate is 3.7 percent, and the average job growth rate is 1.8 percent.

The inbound states on average are stronger economically than the outbound states and have more robust labor markets. In contrast, the figures for the five outbound states are 1.0 percent, 4.8 percent, and 0.8 percent. In other words, compared to the outbound states, output growth is about 50 percent higher in the inbound states on average (1.6 percent vs. 1.0 percent), the average jobless rate is more than one percentage point lower (3.7 percent vs. 4.8 percent) and employment growth is one percentage point higher (1.8 percent vs. 0.8 percent).

Those three important economic indicators suggest that the inbound states on average are stronger economically than the outbound states and have more robust labor markets with lower jobless rates and greater job creation.

Finally, although it’s not shown in the table above, it is worth mentioning that all five of the inbound states have Republican-controlled state legislatures and all of the outbound states have Democratic-controlled state legislatures except for Michigan. Since the top inbound states are relatively low-tax, business-friendly, fiscally healthy, and high-growth states and the top outbound states are relatively high-tax, business-unfriendly, fiscally unhealthy and low-growth states, the difference in party control of the state legislatures is exactly what one might expect.

Bottom Line

There is empirical evidence that Americans do “vote with their feet” when they relocate from one state to another. The migration patterns of US households last year followed predictable patterns based on differences among states in economic growth, vitality, and dynamism, labor market robustness, fiscal health, and party control of state legislatures. To answer the questions posed above, there are significant differences between the top five inbound and top five outbound states when they're compared on a variety of measures of economic performance, business climate, tax burdens for businesses and individuals, fiscal health, and labor market dynamism.

There is empirical evidence that Americans do “vote with their feet” when they relocate from one state to another, and the evidence suggests thatAmericans are moving from statesthat are relatively more economically stagnant, Democratic-controlled fiscally unhealthy states with higher taxes, more regulations, and with fewer economic and job opportunitiesto Republican-controlled, fiscally sound statesthat are relatively more economically vibrant, dynamic and business-friendly, with lower tax and regulatory burdens, and more economic and job opportunities.

Who’d a-thunk it? Americans vote with their feet because they value jobs, economic freedom and prosperity, entrepreneurship, lower taxes, and less government over the opposite?